Pierre Erasmus

Advances in the corporate governance practices of Johannesburg Stock Exchange companies

Southern African Business Review, 2019

Since the 20th century, corporate governance mechanisms have been developed globally to curb the ... more Since the 20th century, corporate governance mechanisms have been developed globally to curb the negative effects of the agency problem. South Africa was a pioneer with the publication of the first King Report on corporate governance in 1994. Given the paucity of research on corporate governance in the country, the researchers set out to investigate the corporate governance practices of 230 companies listed on the Johannesburg Stock Exchange over the period 2002 to 2010. Annual corporate governance scores were compiled by means of content analysis of the sample companiesâ€™ annual reports. The empirical findings revealed an increasing compliance trend towards 2010. Although the sample companies tended to improve the disclosure of their corporate governance practices over time, their practices were not per se acceptable (where acceptability implies meeting the King II recommendations). Inexperienced directors and managers might benefit from more training to enhance their understandin...

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Value Based Financial Performance Measures: An Evaluation of Relative and Incremental Information Content

Corporate Ownership and Control, 2008

Value-based (VB) financial performance measures are often advanced as improvements over tradition... more Value-based (VB) financial performance measures are often advanced as improvements over traditional measures. It is argued that the inclusion of a firm‟s cost of capital in the calculation of these measures facilitates the evaluation of value creation. Furthermore they attempt to remove some accounting distortions resulting from the limitations of conventional accounting information. This paper investigates the ability of four VB measures to explain market-adjusted share returns and compare it to that of some traditional measures. Empirical results indicate that the relative information contents of the VB measures are not greater than that of earnings. The incremental information content tests indicate that their components add significantly to the information content of earnings, but that the level of significance is relatively low

format_quoteLimitations of Cash Value Added (CVA) include loss of important information due to its exclusion of accruals and depreciation.format_quote

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Determining a method to measure the capital intensity for enterprises listed in the industrial sector of the Johannesburg Stock Exchange for the period 1989 to 1996

The combined effect of changes in the South African business environment on capital structure

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2011

The management of a firm's capital structure is an important aspect of the financial manager&... more The management of a firm's capital structure is an important aspect of the financial manager's responsibilities. Various factors in the business environment can have an influence on a firm's financing decisions. This study considered the impact of various economic and firm-specific factors on the finance decisions of firms. A census of Johannesburg Securities Exchange (JSE Ltd) listed industrial firms was considered over the period 1989 to 2008. Profound changes occurred in the South African business environment during the study period, thus providing the ideal capital structure research environment in a developing country. A time-series cross-section regression procedure with one-period lags was used. The results of this study indicate that the effects of economic changes on capital structure are often indirect and only seen after a period of time. It was also noted that the trade-off and pecking-order capital structure models are not mutually exclusive. Over time, mana...

The combined effect of changes in the South African business environment on capital structure

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2011

The management of a firm's capital structure is an important aspect of the financial manager&... more The management of a firm's capital structure is an important aspect of the financial manager's responsibilities. Various factors in the business environment can have an influence on a firm's financing decisions. This study considered the impact of various economic and firm-specific factors on the finance decisions of firms. A census of Johannesburg Securities Exchange (JSE Ltd) listed industrial firms was considered over the period 1989 to 2008. Profound changes occurred in the South African business environment during the study period, thus providing the ideal capital structure research environment in a developing country. A time-series cross-section regression procedure with one-period lags was used. The results of this study indicate that the effects of economic changes on capital structure are often indirect and only seen after a period of time. It was also noted that the trade-off and pecking-order capital structure models are not mutually exclusive. Over time, mana...

Investor short-termis and managerial myopia : irrational behaviour or human nature

Financial Management: Turning Theory into Practice

OUP Catalogue, 2014

Financial management: Turning theory into practice is an accessible and principles-based financia... more Financial management: Turning theory into practice is an accessible and principles-based financial management textbook for undergraduate and Honours Accounting students. The book takes cognizance of changes in the economic environment and their implications for the role of financial management and the teaching of the subject. Financial management follows the SAICA syllabus for financial management but also takes the skills required by the CIMA syllabus into account. It acknowledges the intent behind the SAICA Competency Framework to develop problem-solving, critical thinking and ethical business leaders, but at the same time provides academic and financial literacy support to students. This guided approach serves to produce both technically competent students as well as students who will be capable financial leaders in the workplace. Financial management supports students in the following ways: - Opening case studies engage student interest and illustrate why the principles that wil...

Financial Management: Turning Theory into Practice

OUP Catalogue, 2014

Financial management: Turning theory into practice is an accessible and principles-based financia... more Financial management: Turning theory into practice is an accessible and principles-based financial management textbook for undergraduate and Honours Accounting students. The book takes cognizance of changes in the economic environment and their implications for the role of financial management and the teaching of the subject. Financial management follows the SAICA syllabus for financial management but also takes the skills required by the CIMA syllabus into account. It acknowledges the intent behind the SAICA Competency Framework to develop problem-solving, critical thinking and ethical business leaders, but at the same time provides academic and financial literacy support to students. This guided approach serves to produce both technically competent students as well as students who will be capable financial leaders in the workplace. Financial management supports students in the following ways: - Opening case studies engage student interest and illustrate why the principles that wil...

The influence of firm characteristics and economic factors on capital structures : a comparison between book value and market value leverage

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2012

The goal of maximising shareholders' wealth implies that financial managers must structure a ... more The goal of maximising shareholders' wealth implies that financial managers must structure a firm's financing sources in an optimal manner. Various factors can have an effect on these financing decisions. The objective of this study was to investigate the effect of firm characteristics and economic factors on the capital structures of South African listed industrial firms. Panel data methodology was applied to a sample of 280 firms, covering the period from 1995 to 2008. The results indicate that some of the identified firm characteristics and economic factors do have an effect on capital structure formation. The combined effect of these factors is even stronger when their values for the preceding year are included. Management therefore appears to take some of the factors into consideration when making capital structure decisions. Furthermore, capital structure adjustments are, in some cases, introduced over time by incorporating both the current and past values of these fac...

The influence of firm characteristics and economic factors on capital structures : a comparison between book value and market value leverage

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2012

The goal of maximising shareholders' wealth implies that financial managers must structure a ... more The goal of maximising shareholders' wealth implies that financial managers must structure a firm's financing sources in an optimal manner. Various factors can have an effect on these financing decisions. The objective of this study was to investigate the effect of firm characteristics and economic factors on the capital structures of South African listed industrial firms. Panel data methodology was applied to a sample of 280 firms, covering the period from 1995 to 2008. The results indicate that some of the identified firm characteristics and economic factors do have an effect on capital structure formation. The combined effect of these factors is even stronger when their values for the preceding year are included. Management therefore appears to take some of the factors into consideration when making capital structure decisions. Furthermore, capital structure adjustments are, in some cases, introduced over time by incorporating both the current and past values of these fac...

The Relationship Between Entrepreneurial Intensity and Shareholder Value Creation

Managing global transitions, 2008

Innovation and entrepreneurship have long been regarded as sources of value and wealth creation. ... more Innovation and entrepreneurship have long been regarded as sources of value and wealth creation. Previous research has shown that there is a positive relationship between enterprises’ levels of entrepreneurship and their financial performance. Little research, however, has hitherto focused on measuring the relationship between entrepreneurship and shareholder value creation. In this study the relationship between the entrepreneurial intensity and the shareholder value created by an enterprise is investigated. An adapted corporate entrepreneurship (CE) measurement instrument is applied in order to gauge entrepreneurial intensity, while shareholder value creation is measured by the market adjusted total share return (TSR) and the value based financial performance measure Economic Value Added (EVA). The study is conducted for a sample of enterprises listed in the industrial sector of the Johannesburg Securities Exchange (JSE) for the period 2003–2005. The contribution of the study is t...

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The Relationship Between Entrepreneurial Intensity and Shareholder Value Creation

Managing global transitions, 2008

Innovation and entrepreneurship have long been regarded as sources of value and wealth creation. ... more Innovation and entrepreneurship have long been regarded as sources of value and wealth creation. Previous research has shown that there is a positive relationship between enterprises’ levels of entrepreneurship and their financial performance. Little research, however, has hitherto focused on measuring the relationship between entrepreneurship and shareholder value creation. In this study the relationship between the entrepreneurial intensity and the shareholder value created by an enterprise is investigated. An adapted corporate entrepreneurship (CE) measurement instrument is applied in order to gauge entrepreneurial intensity, while shareholder value creation is measured by the market adjusted total share return (TSR) and the value based financial performance measure Economic Value Added (EVA). The study is conducted for a sample of enterprises listed in the industrial sector of the Johannesburg Securities Exchange (JSE) for the period 2003–2005. The contribution of the study is t...

format_quoteA significant positive correlation (p < 0.05) exists between entrepreneurial intensity and economic value added (eva) from 2003-2005.format_quote

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Factors that affect South African real estate price growth

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2011

South African real estate prices have experienced some degree of variability during the past 30 y... more South African real estate prices have experienced some degree of variability during the past 30 years. The ability to identify indicators that could be used to predict changes in the residential real estate price cycle would aid managers, industry specialists and investors to make informed decisions about the timing of real estate investments. The objective of this study was to identify the relevant indicators of residential real estate prices by considering existing research studies on this topic and assessing their suitability to be used as predictors of future price levels by means of an ordinary least square regression model. The results of this study indicate that eight of the indicators identified from a survey of the literature provide either good or acceptable predictions of future residential real estate cycles. The major contribution of this study is, therefore, that financial decision-making could be improved by focusing on these predictors of future residential real esta...

Factors that affect South African real estate price growth

Management Dynamics : Journal of the Southern African Institute for Management Scientists, 2011

South African real estate prices have experienced some degree of variability during the past 30 y... more South African real estate prices have experienced some degree of variability during the past 30 years. The ability to identify indicators that could be used to predict changes in the residential real estate price cycle would aid managers, industry specialists and investors to make informed decisions about the timing of real estate investments. The objective of this study was to identify the relevant indicators of residential real estate prices by considering existing research studies on this topic and assessing their suitability to be used as predictors of future price levels by means of an ordinary least square regression model. The results of this study indicate that eight of the indicators identified from a survey of the literature provide either good or acceptable predictions of future residential real estate cycles. The major contribution of this study is, therefore, that financial decision-making could be improved by focusing on these predictors of future residential real esta...

The relationship between working capital management and profitability for South African listed industrial firms

EVA and CFROI : a comparative analysis

Enterprises endeavouring to maximise shareholder value often employ Net Present Value (NPV) techn... more Enterprises endeavouring to maximise shareholder value often employ Net Present Value (NPV) techniques in an attempt to achieve their financial objectives. Since Economic Value Added in monetary terms (EVAmon), Economic Value Added in real terms (EVAreal), and the measure Cash Flow Return on Investment (CFROI) focus on the maximisation of NPV, their implementation could contribute to the creation of shareholder value. In this study, these measures are critically compared. Firstly, the advantages and the disadvantages of the methods are discussed briefly. Secondly, the assumptions of the model developed to compare the measures, and the calculations to be made in order to arrive at meaningful conclusions are highlighted. The study finds that EVAmon is not always suited for use as a financial performance measure. The measures EVAreal and CFROI provide very similar results in the majority of cases investigated. The study identifies those situations where conflicting results are obtained...

EVA and CFROI : a comparative analysis

Enterprises endeavouring to maximise shareholder value often employ Net Present Value (NPV) techn... more Enterprises endeavouring to maximise shareholder value often employ Net Present Value (NPV) techniques in an attempt to achieve their financial objectives. Since Economic Value Added in monetary terms (EVAmon), Economic Value Added in real terms (EVAreal), and the measure Cash Flow Return on Investment (CFROI) focus on the maximisation of NPV, their implementation could contribute to the creation of shareholder value. In this study, these measures are critically compared. Firstly, the advantages and the disadvantages of the methods are discussed briefly. Secondly, the assumptions of the model developed to compare the measures, and the calculations to be made in order to arrive at meaningful conclusions are highlighted. The study finds that EVAmon is not always suited for use as a financial performance measure. The measures EVAreal and CFROI provide very similar results in the majority of cases investigated. The study identifies those situations where conflicting results are obtained...

Measuring corporate governance in South Africa : developments, concerns and suggestions

A large and increasing number of corporate governance guidelines have emerged on the African cont... more A large and increasing number of corporate governance guidelines have emerged on the African continent over the last two decades. Limited research has, however, been conducted to comprehensively assess the corporate governance policies and practices of listed African companies. The researchers hence compiled a unique corporate governance database for 230 companies that were listed on the Johannesburg Stock Exchange over a nine year study period. Attention was given to both disclosure and acceptability dimensions for nine corporate governance categories. Positive developments were noted for the director-related categories, while reporting on sustainability and corporate culture aspects showed less improvement. A number of unacceptable practices were also observed. Enhanced training for directors, managers and auditors is recommended to improve their understanding of their roles and responsibilities. Furthermore, the media can encourage more active corporate governance-related dialogu...

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